POORLY FUNDED PENSION: The town's pension plan is severely underfunded
and recent pension reform efforts have reduced annual required
contributions (ARC) to more manageable levels. After years of
underfunding, management has begun making full ARC payments at the
reduced level, although Fitch expects a very poorly funded pension plan
for some time.

MODERATE RESERVE LEVELS: Fiscal 2014 results reflect a decline in
general fund balance to still-moderate levels. Surplus operations in the
school fund have resulted in a moderate fund balance after prior years
of deficit balances.

WEAK DEMOGRAPHICS: Demographics are weak with a relatively declining
population, low wealth levels, and high unemployment. After a notable
decline during the recession, assessed values have begun to stabilize.

PRUDENT FINANCIAL MANAGEMENT: Management's ability to consistently
achieve balanced operations and adequate reserve levels is key to the
rating remaining at the investment-grade level. These actions, combined
with an increase in revenue flexibility driven by a strengthening
economy and tax base growth, could support a positive change in the
rating.

CREDIT PROFILE

West Warwick is 11 miles south of the state capital city of Providence.
The 2013 population of 28,893 represents a 2.3% decline over the 2000
census figure.

PRUDENT MANAGEMENT ACTIONS LEAD TO BETTER FINANCIAL STABILITY

Management was successful in negotiating pension reform measures with
its labor groups and retirees resulting in substantial budget relief for
the five-year period of fiscal 2015 to 2019. Additionally, it has made
broad changes to its health plans and negotiated higher employee and
future retiree contributions. The sought-after pension and health care
reforms were part of the town's plan to reduce its long-term liabilities
and achieve full funding of the ARC of its town-administered employee
pension plan. The town began making 100% ARC payments in fiscal 2015 and
has budgeted for 100% pension and other post-employment benefit (OPEB)
contributions in fiscal 2016.

The pension and OPEB changes were part of five-year employment contracts
with its labor groups, effective July 1, 2014. Employees agreed to no
salary increases over this period. The contracts contain a wage-opener
clause in years four and five in the event the town meets certain
financial improvement thresholds.

FISCAL 2015 PROJECTIONS REFLECT STABLE RESULTS

Voters approved the fiscal 2015 budget via referendum last year, capping
off a collaborative effort among all affected parties to restore
financial stability within the town. The budget included a 3.79% tax
levy increase, slightly below the state-wide 4% annual levy cap.
Property taxes make up 69% of the overall $86 million budget followed by
state aid (28%).

Management reports the general fund is expecting balanced operations
even though severe winter weather resulted in snow removal costs
exceeding budget. The school fund has shown some medical and dental
expense savings and with continued expenditure controls in place,
management is projecting balanced operations.

FISCAL 2016 BUDGET REFLECTS MODERATE TAX RATE INCREASE

The fiscal 2016 budget of $89.5 million was approved last month by
residents and was up $3.2 million or 3.7% from the prior year's budget.
The budget includes a 3.24% tax levy increase of $1.9 million and
appropriations of $505,000 for capital projects and $200,000 surplus to
fund balance.

West Warwick's charter requires its budget (including any tax levy over
the cap) to be approved by voter referendum. If approval is not
received, the town can operate under the previous year's budget until
the succeeding budget is approved.

FISCAL 2014 RESULTS MIXED

The town's fiscal 2014 budget of $83 million was a 4.3% increase over
fiscal 2013. The budget included a $1.9 million (3.9%) tax levy
increase. Incorporated in the tax increase was approximately $750,000 in
additional revenue generated from the decrease in the motor vehicle
value exemption to $1,000 from $2,500 for the motor vehicle tax.

The town had a net operating deficit of $889,000 (1.38% of spending) due
to higher than anticipated legal costs associated with the labor
negotiations, and higher overtime, insurance and utility costs. Capital
spending accounted for $634,255 of general fund spending. The
unrestricted general fund totaled $3.4 million or a moderate 5.3% of
spending.

The school fund posted surplus results due to a combination of lower
than anticipated medical and dental insurance expenses, and lower than
budgeted salary and capital spending. Additionally, the school fund
continues to receive increases in annual state aid in accordance with
the state's fair funding formula. The school fund ended the fiscal year
with a $2.7 million (5.4% of spending) operating surplus increasing its
fund balance to $2.71 million.

PENSION REFORM EFFORTS LOWER ANNUAL PENSION COSTS

The town-administered employee pension plan is severely underfunded at
only 19% as of July 1, 2014 due to years of continuous under-funding.
The funded level declines to an estimated 18% using Fitch's 7%
investment rate of return. The unfunded liability is $117 million, or a
high 5.6% of assessed value (AV).

The agreed-upon reforms that were made with the town's labor groups and
retirees were court approved in July 2014 and include suspension of
cost-of-living-adjustments (COLAs) for the next five fiscal years and
increased contribution rates for employees. The reforms resulted in a
reduction of the ARC from $10.7 million to $8 million for fiscal 2015
and lowered the future annual rate of growth in the ARC. The reduction
will allow the city to achieve 100% funding of the ARC commencing fiscal
2015 rather than the partial payments that have been made over the last
several years. The town contributed $6 million in fiscal 2014.

The town is required to fully fund its pension ARC in accordance with
the court-approved plan of reform. The ARC is projected to increase by
an average 3.5% annually over the next 20 years. The system is projected
to reach a still-weak 60% funded status by 2033 assuming the town's 7.5%
investment rate and payment of 100% of the ARC in years 1-5 and 100.5%
of the ARC in years 6-20. The purpose of the higher ARC percentage in
these years is to meet the state's requirement of emerging from critical
pension status (less than 60% funded) by fiscal year ending 2033.

The town's five-year plan to improve pension funding assumes additional
annual tax levy increases. Changes in the tax base, either positive or
negative, will influence the level of these tax increases.

The town fully funds the ARC to the state's Employee Retirement System
(ERS) for its teachers. However, Fitch considers the state teachers'
plan to be weakly funded at an estimated 57% at June 30, 2014 using
Fitch's 7% rate of return assumption.

FUTURE OPEB LIABILITIES REDUCED WITH REFORMS

The town's unfunded OPEB liability as of June 30, 2014 was $58 million,
a large improvement from the $107 million valuation for June 30, 2011.
Due to recent healthcare plan reforms and increases in employee
contributions and newly required retiree contributions, the annual costs
and overall liability declined. The town paid $3.5 million towards its
fiscal 2014 ARC of $4.8 million (or 73%). An increase in the town's
annual funding of OPEB costs above pay-as-you-go was budgeted for in
fiscal 2016 with plans to establish a dedicated investment trust.

LOW DEBT RATIOS; MODERATELY HIGH CARRYING COSTS

Overall debt levels are very low at 1.2% of fiscal 2016 AV and $848 per
capita. Debt amortization is above-average with 78% of par maturing in
10 years. Last month voters approved the authorization of $25 million in
new debt for various projects. Of the authorization $18 million has been
earmarked for the financing of the purchase of wind turbines anticipated
to be paid for from current costs associated with energy usage and $5
million has been designated for road improvements. Even with this new
debt, which is about equal to the currently outstanding amount, debt
levels should remain low.

Total carrying costs for the full town pension plan ARC (prior to
reform), ERS contributions, OPEB contributions and debt service
represents a moderately high 22% of fiscal 2014 total governmental
spending. Fitch expects carrying costs to decrease moderately due to the
decline in the pension and OPEB ARCs beginning in fiscal 2015. Carrying
costs will grow moderately thereafter to meet the pension funding goals
and accommodate the new debt.

BELOW-AVERAGE ECONOMIC INDICATORS

Wealth levels are slightly below state and national averages.
Unemployment remains improved to 7.6% in March 2015 from 9.7% the prior
year as employment grew 2.3% over the period.

The town was formerly an industrial and textile center and progress has
been made in industrial diversification with several larger former
textile mills converted to multiple tenancy by smaller, newer
businesses. Management reports a notable increase in the number of
building permits compared to last year reflecting both residential and
commercial improvements and expansion.

AV had declined by 8.7% in fiscal 2014 due to a triennial property
revaluation effective Dec. 31, 2012. The decline reflects a housing
market that was struggling but is showing modest signs of improvement.
Taxable values have improved by 1.1% and 0.87% for fiscals 2015 and
2016, respectively as new projects come on line. Housing values
increased 2.4% year over year through April 30 according to Zillow Group
but are still substantially below peak levels.

New development projects underway, and planned, are anticipated by
management to increase AV and help offset some of the future anticipated
tax increases. Fitch believes this to be reasonable due to the reports
of activity underway and the increase in building permits. Fitch will
evaluate the impact of any change in the current weak economic trend
once it starts to materialize.

In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this action was additionally informed by
information from Creditscope, University Financial Associates,
S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, and
the National Association of Realtors.

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